Tuesday, August 11, 2009

The market's A of (Y) wave appears to have topped but the count since the peak is still an educated guess. One such possibility is shown in the chart above. The market stopped at important resistance around 992 but did break through a longstanding upward sloping channel today. This resistance, the bottom of the price territory of wave (iv) of [v], should be broken if this is truly wave B.

Wave [v] was extended so wave A should be retraced at least down to the 970-980 area. Not only is that the price territory of wave (ii) of [v], but it is an area of strong resistance. If this is broken, the 950s may serve as support. Some Fibonacci targets are shown.

Notice the downward sloping trendline that closed near 991 today. This line has served as support in the past and may continue that role tomorrow. If the count shown above is correct, wave v of (iii) may end tomorrow around 990, the location of the trendline by then along with the lower 100% monthly support zone as the yellow Fibonacci levels indicate. 990 would also create equality between waves i and v giving nice balance to (iii). If 990 serves as support, a head and shoulders pattern may be unfolding with a bearish downward sloping neckline. On the other hand if 990 is easily broken, the market is probably completing a 3rd wave of some degree.

In my estimation, declining wave B of (Y) of primary wave [2] is underway. I posted a year-to-date chart some time ago showing this and it is still very much applicable today even though it was not Elliott Wave International's count at the time. But keep in mind the collective market psychology is very bullish; there are more bulls now than there were during the 2007 peak. The media, general population, and of course the government is now sold on the idea of a recovery. It means the market is topping very soon. So although I do expect waves B and C of (Y) to unfold in the upcoming weeks, the sentiment is already at an extreme. Playing on the long side is very risky.

Problems:The count not clear. Luckily technical analysis is helping.

Alternatives:Some other impulsive count from the top. The market may be winding up for a big "3rd of a 3rd" drop.

Primary wave [3] is underway.

There has been a double zigzag from the top. A is becoming more extended.

The market's A of (Y) wave appears to have topped but the count since the peak is still an educated guess. One such possibility is shown in the chart above. The market stopped at important resistance around 992 but did break through a longstanding upward sloping channel today. This resistance, the bottom of the price territory of wave (iv) of [v], should be broken if this is truly wave B.

Wave [v] was extended so wave A should be retraced at least down to the 970-980 area. Not only is that the price territory of wave (ii) of [v], but it is an area of strong resistance. If this is broken, the 950s may serve as support. Some Fibonacci targets are shown.

Notice the downward sloping trendline that closed near 991 today. This line has served as support in the past and may continue that role tomorrow. If the count shown above is correct, wave v of (iii) may end tomorrow around 990, the location of the trendline by then along with the lower 100% monthly support zone as the yellow Fibonacci levels indicate. 990 would also create equality between waves i and v giving nice balance to (iii). If 990 serves as support, a head and shoulders pattern may be unfolding with a bearish downward sloping neckline. On the other hand if 990 is easily broken, the market is probably completing a 3rd wave of some degree.

In my estimation, declining wave B of (Y) of primary wave [2] is underway. I posted a year-to-date chart some time ago showing this and it is still very much applicable today even though it was not Elliott Wave International's count at the time. But keep in mind the collective market psychology is very bullish; there are more bulls now than there were during the 2007 peak. The media, general population, and of course the government is now sold on the idea of a recovery. It means the market is topping very soon. So although I do expect waves B and C of (Y) to unfold in the upcoming weeks, the sentiment is already at an extreme. Playing on the long side is very risky.

Problems:The count not clear. Luckily technical analysis is helping.

Alternatives:Some other impulsive count from the top. The market may be winding up for a big "3rd of a 3rd" drop.

Primary wave [3] is underway.

There has been a double zigzag from the top. A is becoming more extended.

My trading philosophy is 95% based on my own Elliott Wave analysis of the S&P 500. I try to keep my analysis and trading as simple as possible and do not use trend lines, channels, or definite retracement, price, or time targets. To me, inspecting the proportionality and symmetry of a market's price structure is the key to mastering the principle; it is through this that low-risk, high-reward trading opportunities are found.

Because they are the only things I look at when trading, the quality of the charts I post on this blog are very important to me. I think you will find my work to be the best Elliott Wave analysis of the S&P 500 on the internet.